Natter 56: ...we need the writers.
Off-topic discussion. Wanna talk about corsets, duct tape, or physics? This is the place. Detailed discussion of any current-season TV must be whitefonted.
Ideally, I want no credit card debt and savings. Bit of a pipe dream right now, but there you go.
I'm really not anything like an authority on finances, but my gut feeling is that in an era of easy credit, savings is almost an outmoded concept. It feels right based on a work ethic, but I don't really think it's finessing the system that exists.
Leveraging debt is a big part of the financial services industry. People want to believe that their hard work creates real money that exists in a real sense, but the way finance
actually
works doesn't depend on that.
In short: having a good credit rating is more valuable than actual savings.
I have a great credit rating. I would still rather have cash on hand to pay for an emergency expense than charge it and have to pay interest for months trying to pay it off.
You can have the best credit rating in the world, but if you lose your job and your furnace blows up, I'd think that savings could help keep you from falling deeper and deeper into a hole. Credit card debt has helped people not understand the dire financial situation that the were getting into the last few years (not all, but in general) and which many are finally starting to realize, as they use up their credit. And, there are some strong arguments that the debt of the country as a whole have significantly inhibited our willingness to stand up against injustice and for the best interests of our people (as opposed to corporations), both at home and abroad.
I think you and your friend have a good point, David, and I do use credit as well, but I think that there's real value to saving, and I think many, if not most, financial advisers would agree.
I would still rather have cash on hand to pay for an emergency expense than charge it and have to pay interest for months trying to pay it off.
Well, the notion is that all the time you've got money tied up in savings not earning significant interest costs you more than the interest on credit.
That's a hard concept for me to accept. Not the good credit rating - but that savings isn't important. I guess I'm assuming an extreme scenario here - but not an impossible one. assume zero debt except for house. Assume DH loses job. with what we have in savings we have a 3 months at current rate of spending. Add unemployment, willingness to take on cc debt, and a curtailing of spending means 6 to 7 months before we have to sell the house, dip into retirement or do anything that drastically effects retirement.
Of course, wealth in sense of big money isn't my real goal. More a comfortable retirement- that won't start until I'm 70.
ideally - 0 debt except for house . 6 month of saving - 1/2 in an easy to get to place - the other 1/2 in something like a ladder CD account. Use the equity in the house to do home improvements. Retirement - as long as the home improvements haven't outpaced the value of the house-has a whole bunch of options.
I haven't thought this through, but off the cuff, I think you can't evaluate these things divorced from overall economic standing. For a big wheel financial advisor, savings proportionate to income are probably
not
a good strategy. For people living a little closer to the edge, I don't think it's as clear.
Easy credit isn't that easy anymore either, from all reports. Banks are pulling back on credit lines and the kind of liquidity that would see you through a job loss or house fire or something simply may not be there for a lot of people.
I'm looking at his writing on the subject and I'm not really doing justice to it. Suffice to say that it has to do with the financial value of "risk" and how that plays out as "Emergency funds/savings" vs. credit.
In short, risk is something that can be calculated and factored and the numbers swing hard to credit over savings.
Emotionally and intuitively that's now how people feel about risk or money but that's the way the numbers play.
Let me put it this way:
How hard would it be for you to save $7,500?
How hard would it be for you to get $7,500 in credit?
I have more savings than I probably should, but I would get twitchy without it, because I had it drilled in to my head early and often that that was how things were done.
How hard would it be for you to save $7,500?
How hard would it be for you to get $7,500 in credit?
I understand the argument in terms of how important it is to
have
good credit for exactly this reason, but I guess I'm confused at why--once you have good credit--having cash on hand wouldn't be better than getting stuck with an interest payment. Because even if my savings is only earning 1% while it's sitting there, isn't that better than paying 5% (on the low end) for credit debt?
